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What happened to the 'spectrum crunch?'

Remember the "spectrum crunch?" The FCC and its chairman, Julius Genachowski, have for years been hitting on the theme that the U.S. is dangerously close to running out of spectrum for mobile broadband, which is why the FCC's 2010 national broadband plan calls for freeing up 300 MHz of new spectrum for mobile broadband in five years and 500 MHz in 10 years. The CTIA has been making the same argument.

But is the spectrum crunch still real? Was it ever?

Executives from the nation's largest wireless carriers now seem to be pretty pleased with their spectrum positions. AT&T (NYSE:T) CEO Randall Stephenson recently said the carrier has a solid spectrum position for the next three to five years if it gains approval for its pending spectrum purchases. Verizon Communications (NYSE:VZ) CFO Fran Shammo said that with its recently completed $3.9 billion purchase of nationwide AWS spectrum from cable companies, Verizon Wireless now has enough spectrum to handle its capacity needs for the next four to five years. Sprint Nextel (NYSE:S) CEO Dan Hesse said the carrier's Network Vision plan will give Sprint a strong spectrum position through the end of 2014 and that date will be extended to 2016 with the addition of spectrum from Clearwire (NASDAQ:CLWR). And T-Mobile USA CTO Neville Ray said the carrier is busy refarming its 1900 MHz PCS spectrum and now has enough 1700 MHz AWS airwaves to deploy 10x10 MHz channels across 90 percent of the top 25 U.S. markets when it launches LTE next year.

So what happened? Did the spectrum crunch disappear during the past year? Arguably, concerns about capacity and spectrum supply pushed all of the carriers to make these deals and network changes. However, there certainly seems to be less urgency around the issue than there was a year or two ago.

"I think it [the spectrum crunch] was overblown. And everyone had an interest in pumping up a spectrum crisis," said TMF Associates analyst Tim Farrar. He said the FCC wanted to promote itself as the agency that could spur innovation and expand broadband access; Verizon and AT&T didn't want the FCC to cap the amount of spectrum available to them; companies that speculated with spectrum did not want the market to think they had worthless assets; and smaller carriers wanted more spectrum on the market to lower the price of all spectrum. "Everybody had an interest in talking it up and no one had an interest in saying the emperor has no clothes," he said.

Is that the full picture? I definitely think there is a great deal of truth in Farrar's argument. And recent actions by the nation's Tier 1 seem to indicate there are readily available (if expensive) ways for them to meet their medium-term spectrum needs. However, this picture ignores the fact that smaller carriers with less resources are still searching for more spectrum and, judging by the stance of the Competitive Carriers Association, they are clearly worried about the likes of AT&T getting their hands on even more spectrum.

CTIA still thinks there is definitely a spectrum crunch and that it's not going away. Chris Guttman-McCabe, CTIA's vice president of regulatory affairs, said that when one looks at the amount spectrum the FCC wants to bring to market and the projected growth in data traffic, it's clear that more spectrum is needed. He notes that given the FCC's timelines, broadcast TV spectrum will not be used by carriers until 2015. When the industry gets to that point, "we need to make sure that [wireless carriers] have the spectrum resources available to meet their needs," he said.

"My sense is that this spectrum crunch is real," said Medley Global Advisors analyst Jeffrey Silva. "Or else these companies wouldn't have been pushing to get these deals done, at least the ones that were successful. As businesses they're going to have to have a longer time horizon because of the macro trends." Others, including a new report from Deloitte, have sounded similar themes about the dangers a spectrum shortage poses for U.S. companies and the economy.

The FCC is clearly trying to push as much of its spectrum agenda as possible before the November election. It voted not only on proposed rules for the broadcast spectrum auction, but also possible changes to its so-called spectrum screen, which could produce more uniform rules on how much spectrum carriers can hold. These two ideas are interrelated. If changes are made to the screen that give more weight to spectrum holdings below 1 GHz, that could potentially push carriers--including AT&T and Verizon—not to participate in the broadcast auctions. It could get very complicated as the FCC balances these two proposals.

One thing seems clear to me: We're likely to keep hearing about the spectrum crunch. Even if it may have gone away for a little while, it will come back. Call me when it does. --Phil